BEFORETHE
POSTAL RATE COMMISSION
WASHINGTON,
D.C. 20268-0001
I
I
MAILING ONLINE SERVICE
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Docket
II
No. MC98-1
RESPONSE OF UNITED STATES POSTAL SERVICE
WITNESS PLUNKETT TO INTERROGATORIES OF
DAVID B. POPKIN
(DBP/USPS-TSI-3)
The United States Postal Service hereby provides
Plunkett
to the following
filed on July 30, 1998.
interrogatories
Interrogatory
responses
of David B. Popkin:
DBP/USPS-T5-4
of witness
DBP/USPS-T5-
was redirected
to witness
Garvey.
Each interrogatory
is stated verbatim
and is followed
Respectfully
by the response.
submitted,
UNITED STATES POSTAL SERVICE
By its attorneys:
Daniel J. Foucheaux, Jr.
Chief Counsel, Ratemaking
4&a%. (zcaDavid H. Rubin
475 L’Enfant Plaza West, S.W.
Washington,
D.C. 20260-I
137
(202) 268-2986;
Fax -5402
August 10, 1998
1-3,
RESPONSE OF POSTAL SERVICE WITNESS PLUNKETT
INTERROGATORIES
OF DAVID B. POPKIN
TO
DBPIUSPS-T5-1
a. Confirm that you are proposing to utilize different rates for this service
depending on the printing costs for the contractor that will be utilized.
b. Confirm that there will be a 25% markup on whatever
the contract calls for.
c. Confirm that the higher the contract value, the greater the markup for the
Postal Service.
d. Explain any items that you are not able to confirm.
DBPIUSPS-TS-1
Response.
a. Confirmed that, during experimental
Mailing Online service, pre-mailing
service fees charged to a customer will depend on the specific printing
contractor
used.
Postage rates will be the same for all customers.
b. Confirmed that the Postal Service proposes
printing and finishing charges established
c-d.Not confirmed.
a 25 percent markup on the
by contract.
The markup on printing costs is a constant 25 percent of
actual printer costs.
RESPONSE OF POSTAL SERVICE WITNESS PLUNKETT
INTERROGATORIES
OF DAVID B. POPKIN
TO
DBPIUSPS-TB-2
a. Are there any other instances in the many categories of mail that may be
utilized where the rates are different for different parts of the country or
different category of mailer for the same item mailed in the same manner?
b. If so, provide a complete listing.
c. Confirm that your explanation for the justification of this cost plus markup
concept in the proposed Docket on page 3 of your testimony could also apply
to all of those various postal rates which are the same throughout the
country.
d. Fully explain if you are unable to confirm.
e. Why do you feel that this Docket, and this Docket alone, requires such a
deviation from standard countrywide pricing?
DBPIUSPS-TS-2
Response.
a-b.Yes. Postage prices which vary by the level of service sought, or by
geography
are not unusual.
classification
While I am not an expert on the entire mail
system, some examples are:
Rates which differ by the number of postal zones crossed or the distance
from origin to destination.
weighing
Zoned rates currently exist for (1) Priority Mail
more than five pounds; (2) Periodicals;
(3) parcel post; and (4)
bound printed matter.
Rates which differ by the type of mailer.
Mail (A) rate schedules,
In both the Periodicals
qualified nonprofit organizations
and Standard
pay a lower rate for
mailing a given item than mailers not eligible for the nonprofit designation.
RESPONSE OF POSTAL SERVICE WITNESS PLUNKETT
INTERROGATORIES
OF DAVID B. POPKIN
c-e.Not confirmed.
I am not proposing
any changes in established
methods for the existing rate classes.
TO
ratemaking
In general, other postal rates are not
based directly on contract costs, and do not vary much based on costs at the
destination
location (as opposed
As described
in my testimony
to transportation
costs to the destination)
at pages 2-3, Mailing Online printer costs will
vary across regions, and the flexibility provided by a preset markup will allow
the Postal Service to signal customers
and preparing
the mailing.
volatile paper costs.
correctly regarding the cost of printing
The use of a markup will also help fees reflect
I am not aware of other postal services with costs that
can be so closely tied to specific contracts and whose costs are so
demonstrably
volatile.
The primary cost driver for other postal products
generally
is the Postal Service’s own labor costs. Mailing Online is different
because
it is a limited program with clearly identifiable
contracts)
expected
which are readily separable
to vary significantly
from costs of other products, are
by region, and are subject to change in ways
that are different from other postal products.
proposed
costs (specific printer
pricing system appropriate
These features make the
for Mailing Online.
DBP-T5-2
Page 2 of 2
RESPONSE OF POSTAL SERVICE WITNESS PLUNKETT
INTERROGATORIES
OF DAVID B. POPKIN
TO
DBPIUSPS-TS-3
a. Confirm that the higher the contract price, the greater the markup of 25% will
be to the Postal Service.
b. If not, fully explain.
c. What incentive does the Postal Service have to negotiate the lowest prices
with the various printers?
DBPIUSPS-TB3
Response.
a-b.Not confirmed.
The markup on printing costs is a constant 25 percent of
actual printer costs.
However, if the contract price is higher, the number of
dollars collected by the Postal Service through the fixed 25 percent markup
will be greater.
c. Each of the Mailing Online printing contracts will be awarded
with the Postal Service’s established
encourage
procurement
practices.
in compliance
These practices
the awarding of a contract to the offeror whose proposal offers the
best value to the Postal Service, considering
both the technical
requirements
of the contract and price. Part of the best value decision process includes
ensuring that prices offered are fair and reasonable
to the Postal Service,
and ultimately, to its customers.
The implication of your question, that the Postal Service stands to gain by
selecting a high cost provider, might have some validity for a company
seeking to maximize short-term
profit. However, that presumption
for the Postal Service in at least two respects.
is wrong
First, the Postal Service
RESPONSE OF POSTAL SERVICE WITNESS PLUNKETT
INTERROGATORIES
OF DAVID B. POPKIN
operates
under a break-even
means any unanticipated
one classification
constraint.
“profits” or contributions
would reduce contributions
time of the next rate adjustment.
“profit” may jeopardize
product by producing
TO
service, this
to institutional
costs from
from other classifications
Therefore,
extra costs would be relatively short-lived.
higher short-term
For a permanent
DBP-T5-3
Page 2 of 2
at the
any “profits” from markups on
Second, driving up costs to yield a
the growth potential of the new
an artificially high price.
.
.
DECLARATION
I, Michael
answers
K. Plunkett,
are true and correct,
declare under penalty
of perjury that the foregoing
to the best of my knowledge,
information,
JJpP-ggJJ/
MICHAEL
K. PLUNKE’TT
and belief.
CERTIFICATE
I hereby certify
participants
OF SERVICE
that I have this day served the foregoing
of record in this proceeding
in accordance
document
with section
of Practice.
9iiLAK~. i2JG
David H. Rubin
475 L’Enfant Plaza West, SW.
Washington,
D.C. 20260-I
137
August 10, 1998
upon all
12 of the Rules